1-Drop: Traditional versus Activity-Based Analysis Nutterco, Inc., produces two types of nut butter: peanut butter and cashew butter. Of the two, peanut butter is the more popular. Cashew butter is a specialty line using smaller jars and fewer jars per case. Data concerning the two products follow: Peanut Butter 50,000 Cashew Unused Butter Capacity units of Purchaseb Expected sales (in cases) 10,000 Selling price per case $100 $80 10,000 Direct labor hours 40,000 As needed Receiving orders 500 250 250 500 Packing orders 1,000 500 500 250 Material cost per case $55 $48 Direct labor cost per case $12 $9 Advertising costs $200,000 $70,000 *Practical capacity less expected usage (all unused capacity is permanent). bIn some cases, activity capacity must be purchased in steps (whole units). These steps are provided as necessary. The cost per step is the fixed activity rate multiplied by the step units. The fixed activity rate is the expected fixed activity costs divided by practical activity capacity. Annual overhead costs are listed below. These costs are classified as fixed or variable with respect to the appropriate activity driver. Activity Fixed Variableb Direct labor benefits $0 $200,000 Machine 200,000 250,000 Receiving 200,000 22,500 Packing 100,000 45,000 Total costs $500,000 $517,500 *Costs associated with practical activity capacity. The machine fixed costs are all depreciation with direct labor hours as the driver. These costs are for the actual levels of the cost driver. Required:
1-Drop: Traditional versus Activity-Based Analysis Nutterco, Inc., produces two types of nut butter: peanut butter and cashew butter. Of the two, peanut butter is the more popular. Cashew butter is a specialty line using smaller jars and fewer jars per case. Data concerning the two products follow: Peanut Butter 50,000 Cashew Unused Butter Capacity units of Purchaseb Expected sales (in cases) 10,000 Selling price per case $100 $80 10,000 Direct labor hours 40,000 As needed Receiving orders 500 250 250 500 Packing orders 1,000 500 500 250 Material cost per case $55 $48 Direct labor cost per case $12 $9 Advertising costs $200,000 $70,000 *Practical capacity less expected usage (all unused capacity is permanent). bIn some cases, activity capacity must be purchased in steps (whole units). These steps are provided as necessary. The cost per step is the fixed activity rate multiplied by the step units. The fixed activity rate is the expected fixed activity costs divided by practical activity capacity. Annual overhead costs are listed below. These costs are classified as fixed or variable with respect to the appropriate activity driver. Activity Fixed Variableb Direct labor benefits $0 $200,000 Machine 200,000 250,000 Receiving 200,000 22,500 Packing 100,000 45,000 Total costs $500,000 $517,500 *Costs associated with practical activity capacity. The machine fixed costs are all depreciation with direct labor hours as the driver. These costs are for the actual levels of the cost driver. Required:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Keep-or-Drop: Traditional Versus Activity-Based Analysis
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education